Telecommunications tax limited to city residents

City officials were wrong when they said an increase in the telecommunications tax would apply to all cell phones purchased in the city.

MATT HUTTON

If the City Council approves an increase in the telecommunication tax Monday, people who live outside of Galesburg won’t have to pay it. The tax hike will affect only those land line and cell phone owners with Galesburg billing addresses.

Originally, City Manager Dane Bragg told council members and the public that the tax increase from 2 to 6 percent applied to all land lines in the city limits and all cell phones purchased in Galesburg. However, according to the Illinois Department of Revenue, the tax only applies to cell phones with a billing address inside Galesburg’s corporate limits, regardless of where the phone was purchased. Wednesday morning the city updated its Web site to correct the information.

“We just found out yesterday,” Bragg said Wednesday. “When we first looked at the statute, we interpreted it to mean where you purchased service. The Illinois Department of Revenue verified that was not the case. It only applied to the service address.”

Bragg added that the bulk of the complaints the city had received about the tax had come from people who lived outside the city limits but had purchased their cell phones in Galesburg. Bragg has not heard any complaints from Gallatin River Communications, which opposed the same proposed tax increase last year.

The city’s misinterpretation of the telecommunication tax will not affect the $670,000 in revenue expected to be generated by the increase. Bragg said the projections were based on the $335,000 the city collects on the tax at 2 percent. Phone companies are responsible for applying the proper tax rate.

The revenue would go toward a newly created Park and Recreation Fund. The fund would pay for capital improvements and programming for the department. The city has identified more than $2.5 million in maintenance needs. Several upgrades are planned for 2008, including parking lot upgrades at Arlington, Optimist and Jason Wessels Parks, a new water feature at Lakeside Water Park, improvements to Lakeside and Hawthorne Centers, cart path resurfacing and range fencing improvements at Bunker Links Golf Course.

According to Bragg, those improvements do not account for an additional $8 million worth of long-term needs, including additions to the existing bike/hike trail, updates of the playground equipment at several parks, shoring up the Lake Storey dam and establishing a dog park, among others.

The tax increase will cost the average resident an additional $55 per year. Bragg said that figure is based on the total fee collected in 2006 and divided by the number of households. That means the average resident will pay less, while commercial users likely would see a higher increase.

Council members considered other tax increases, including variations of a sales tax increase. However, ultimately most council members said they supported the telecommunications tax rather than sales tax, which they said would hurt businesses. Bragg pointed out many other cities similar to Galesburg already have local rates at 6 percent, the maximum allowed by the state. That 6 percent cap is in addition to a 7 percent state tax rate, which means the maximum telecommunication rate in the state is 13 percent.

Council will vote on the tax increase at its Monday meeting. It will also vote on the 2008 budget. If the tax does not pass, Bragg said he expected that the budget would be removed from the agenda to be retooled.